The compound you use for this task is commonly referred to as valve grinding compound. I've used Clover Compound by Loctite and also the compound by Permatex which is available at most any NAPA Auto.
For this task I do prefer the oil lubricated valve grinding compounds as opposed to the water based versions. With the water based product the prop seems to bind more and is "grabby" when rotating it around the shaft. For this pictorial I used oil based Permatex brand. Any fine valve grinding compound will work.